Cascading Medicaid Cuts Hurt the Poor and Burden the States

Health care for the poor is in trouble and so are the states that are charged with providing an increasing share of it. As federal aid to states from the American Recovery and Reinvestment Act of 2009 is phased out, most states have been forced to curb Medicaid, the federal-state program that provides health care for the poor and disabled. Despite his strong rhetorical support for Medicaid, President Barack Obama's 2012 budget proposes to reduce the federal share of the program by more than $6 billion.

As a national topic of discussion, Medicaid has been shuffled to the back burner by uprisings abroad and the debt crisis at home. Even when the media spotlight shifts to health care, most of the focus is on the continuing debate over the health care reform measure that Obama managed to push through Congress last year. Republicans describe this law as Obamacare, and their campaign against it helped the GOP take over the House last November. Since then, state attorneys general, most of them Republicans, have tied the Affordable Care Act into legal knots. But in the process of doing this they may also have cemented a formula that expands the state share of Medicaid costs.

After Obama signed the health care bill into law, 26 state attorneys general filed suit in federal court challenging its constitutionality. Their main argument was that Congress lacked authority under the commerce clause of the Constitution to regulate "inactivity," which is to say the decisions of some 30 million Americans not to buy health care insurance. Obamacare would require that everyone buy such insurance, with penalties for those who don't -- and subsidies for those who cannot afford it. The administration contends that "inactivity" is in itself a decision -- in this case a decision of the non-insured to obtain relatively expensive treatment in hospital emergency rooms when they become ill.

So far the federal courts have split, with two Democratic-appointed U.S. District judges upholding the law and two Republican-appointed judges voiding all or part of it as unconstitutional. A U.S. District judge in Virginia agreed with the attorneys general that Americans could not constitutionally be required to buy health insurance but left the rest of the law intact. In Florida, Judge Roger Vinson went further. Comparing the health care bill to a "finely crafted watch" in which the other workings cannot function without the mandate requiring purchase of health insurance, Vinson held that the entire law should be invalidated.

This decision, however, was not quite the complete victory it seemed for those trying to nullify Obamacare. In a less-noticed aspect of his ruling, Judge Vinson rejected the argument of the state AGs that an expansion of Medicaid in the Affordable Care Act violates state sovereignty. In fact, no court so far has accepted this line of reasoning, which probably dooms the chances of this argument with the Supreme Court, which eventually will decide the constitutionality of the health care law.

The likely upshot is that if Obamacare survives, with or without the individual mandate, the federal government will be empowered to shift an increasing share of Medicaid costs to states that are, in New York Gov. Andrew Cuomo's words, "functionally bankrupt." With this year's projected federal budget deficit at a record $1.6 trillion, it is unlikely that Washington will take pity on the states no matter which party is in power.

Budgets, more than State of the Union speeches, are the authentic testimony of an administration's priorities. When Ronald Reagan was president, for example, the rhetoric was invariably anti-government, but the actual budgets perpetuated most of the domestic government programs initiated by the New Deal two generations earlier.

President Obama speaks lyrically of government's mission but his budget is more muted. At least Reagan, via the constructive tinkering of a bipartisan commission, managed some constructive changes in Social Security that helped keep the program reasonably solvent for some 40 years. No president since has managed to accomplish any essential restructuring of Social Security or Medicare, the huge entitlement programs that will eventually have to be cut to bring the cascading national debt under control. Nor, for that matter, have the newly empowered House Republicans, who talk the talk but run for the exits at the mention of entitlement reform even when it is put forth by their own budget whiz, Rep. Paul Ryan (R-Wisconsin).

Facing Fiscal Reality

This bipartisan disinclination to face fiscal reality has had a negative impact on health care, especially for the poor. The avowed purpose of the Affordable Care Act was to extend health insurance to some 30 million Americans who are currently without it. Many of these 30 million people are relatively young people who can afford insurance but are gambling that they won't become sick. Many more are individuals or families that have been squeezed by the Great Recession and spend almost all of their income on food, shelter, and clothing.

An undetermined number of these 30 million are among the 53 million people -- more than one in six Americans -- who are on Medicaid. The Medicaid rolls have grown steadily year after year even as state revenues dwindled because of the recession. It is often noted that employment, still not far from 10 percent, is a "lagging indicator" that grows more slowly than the economy as a whole. State revenues, dependent on income and sales taxes, also lag behind the recovery.

As a result, states have had little choice except to pare Medicaid to the bone. In Washington, the debate over health care has been along partisan lines, but in the states newly installed Democratic governors have been as eager as their Republican counterparts to take the knife to Medicaid. In California, where Medicaid is known as Medi-Cal, Gov. Jerry Brown proposes to cut $1.7 billion from the program, reducing in-home care, doctors' visits and some prescription drugs for the 7.7 million people who rely on it. In New York, Gov. Cuomo seeks to close a $2.85 billion gap in Medicaid and has asked for a task force to report to him on ways of doing it by March 1.

Meanwhile, the Obama administration is in cautious retreat on Medicaid. The enhanced costs of Medicaid that the federal government bore during the recession will expire in mid-2011, and states are trying to make up the difference by cutting optional programs such as organ transplants, prescription drugs, mental health services, eyeglasses, dental care and physical therapy.

In a letter to rebellious governors early this month, Health and Human Services (HHS) Secretary Kathleen Sebelius confirmed that states could legally eliminate such optional services. But on Feb. 15 she went further, giving Arizona Gov. Jan Brewer (R) permission to drop 250,000 childless adults entirely from the Medicaid rolls as part of Brewer's effort to eliminate a $1.1 billion budget shortage.

Sebelius's concessions were underscored by the 2012 budget that Obama submitted to Congress. The budget would cut HHS spending for the first time in the agency's 30-year history. It spared doctors, who would otherwise face deep cuts in Medicare repayments next January, by adding $54 billion to freeze doctors' payments through 2013. But it didn't spare Medicaid recipients. Obama's new budget calls for spending $279 billion on Medicaid and the Children's Health Insurance Program, down from $285.4 billion this year. In plain language, this means stripped-down health care coverage for the poor and bigger burdens for the states.

This story originally ran in the State Net Capitol Journal.